Wednesday, February 27, 2013

Citizens at the bottom of the economic pyramid in China lack even the most basic means to save for their children’s education, make purchases on credit, protect their homes through insurance, and send and receive money.

Financial exclusion prevents many of them from realizing their potential and improving their livelihoods.

How can better financial services be designed to meet their needs?
With the support of the Institute of Money, Technology, and Financial Inclusion at the University of California at Irvine, Reboot undertook a study to understand the daily lives of China’s marginalized and answer this question.

Monday, February 25, 2013

In the next week, frog design researchers will be publishing a series of posts on Core 77 design magazine. Make sure you take a look! These posts (and the incredible photos that we know the frog team for) will focus on researchers' experiences working for commercial and non-commercial clients in places like Afghanistan; post-revolution Egypt; Rwanda; Burundi; Brazil, Ethiopia; South Sudan; India and China. Coinciding with the publication of their new report, In The Hands of God: A Study of Risk and Savings in Afghanistan, they will take on topics of financial inclusion, healthcare, automotive, fast moving consumer goods.

The series starts on Tuesday (tomorrow) with a deep dive onto the streets of Kabul and Herat with a post on how to mitigate risk. On Wednesday we'll be donning more conservative clothes and covering issues around researching extreme gender dynamics. On Thursday we'll publish the report itself, putting these issues into the context of what the team learned and how impacts future designs in Afghanistan and beyond. On Friday we'll shift gears and look at the emotional highs and lows of conducting this kind of research. In the following week we'll look at how to manage expectations in your organisation that understandably is a tad nervous as what you're getting up to in field; and turn out attention to conducting rural research.

Be sure to click through. The project was co-funded by frog design and IMTFI, and the posts and images are going to be truly incredible.

Friday, February 8, 2013

In December 2012, Kenyan mobile operator Safaricom and its
partner bank, the Commercial Bank of Africa (CBA), issued a new banking
product, M-Shwari (Swahili words: shwari, meaning
‘calm’ or ‘cool’). M-Shwari was established to serve as a separate
interest-earning non-transactional savings account operated through M-PESA, the
successful mobile-phone based money transfer system in East Africa (see here for
further details). The dramatic take-up of M-Shwari among M-PESA customers is
testament to Safaricom’s strong brand and its nose for nailing customer pain
points. For most people, its seductive appeal comes from the possibility of instant
credit. Outsiders might feel like the 7.5% fee on a month-long loan is on the
higher side. However, most Kenyans know that’s lower than the available informal
alternatives and some short-term bank loans too.

For heavy M-PESA users, M-Shwari also represents an
effective doubling of the M-PESA balance ceiling; you can now transact much
more without having to visit an M-PESA agent to cash in or out. Safaricom wants
most people to see their M-Shwari account as a modern mobile piggybank. We are
curious to see whether people see M-Shwari as a less liquid version of M-PESA,
one over which they can exercise more self-discipline. The sobering reality
everywhere is that the bulk of electronic accounts held by the informal
majority, including M-PESA accounts themselves, have meager balances. Should we
expect M-Shwari accounts to be any different? Only time will tell.

We are happy to see such innovation at the heart of the
M-PESA proposition. But we do have some regrets about how M-Shwari works. They
relate to some concrete aspects of usability, transparency on loan terms, and
competitive positioning within the M-PESA menu.

The two of us decided to give M-Shwari a trial run. Applying
for a loan was quick and easy, we did it right from our mobile phones, and got
an answer within minutes. One of us was immediately rejected. One can handle
being turned down for a small loan, but it was dispiriting to get a text
message with the opening sentence: “Failed.”
Then the message continued: “Your
M-Shwari loan request was unsuccessful.” It wasn’t clear if there was a
technical failure or if the loan was rejected for creditworthiness reasons, and
in fact some people we talked to applied again only to get the same rejection
message. The message then concluded with: “For
more information please contact M-PESA Customer Care,” without providing a
phone number.

The other one of us got approved for a loan, and the SMS
confirmation announced “Confirmed. Your M-Shwari loan request is approved.”
A follow-up text message (why not the same?) provided the details: “Dear customer. Kindly note you have an
outstanding loan balance of KSH 2,150 due 26/2/2013.” That’s the loan
amount of KES 2,000 ($25) plus a 7.5% fee, due in 30 days.

Fantastic news, except that if you make the mistake of
saving money into your M-Shwari account while you have an outstanding loan with
Safaricom/CBA, they will freeze the amount of new savings up to the value of
what you owe them. If you intended to park that money there for only a few days
you won’t be able to access it until you repay the loan. Safaricom/CBA have just,
in effect, repaid themselves out of your new savings.

The impression in the market is that loans are for 30 days,
whereas the reality is that if you save into M-Shwari the day after getting the
loan, you will have received an overnight loan at 7.5% (to be precise: less the
couple of decimal points of interest you would earn on the frozen savings over
the month). But before we cried foul, we checked and discovered that this
practice of freezing savings even during the first month of the loan is in fact
consistent with the fine print in M-Shwari’s Terms and Conditions. But still,
there’s a gap between how the product works and how it’s generally understood
to work. That’s not good. By creating an incentive to suspend savings activity
while you have a loan, Safaricom and CBA are subordinating the savings function
to the lending service even though Safaricom markets M-Shwari first and
foremost as a savings product.

The final point to note is the positioning of M-Shwari within
the (updated) M-PESA menu. It shines by itself, below “airtime” and above
“payment services” – a new grouping for bill and merchant payments. The fact
that M-Shwari has its own line item and not grouped under a “banking services”
provides yet more evidence that Safaricom’s approach is to design and promote
its own services rather than to aggregate third-party services. Interestingly,
for those with a ‘legacy’ M-KESHO account, the ill-fated joint offering of
Safaricom and Equity Bank, the M-KESHO item on the menu is below “payment
services,” two positions down relative to its proprietary version, M-Shwari. No
pretense of equivalent treatment there.

M-Shwari has raised great expectations in the market, and
that makes it even more important that it fulfills people’s expectations in
terms of loan terms, usability and customer choice.